Gold was down slightly in overnight trading as the dollar gained back ground against other currencies as the investment world looks toward the Fed on Friday.

In early trading gold was down $3.87 to $1,662.73 and silver was off $0.17 to $30.67, for a silver/gold ratio of 54.2 as silver continues its rally.

There’s been a lot of speculation in the media that current gold prices are stimulus bets. If that’s the case, those are bad bets. I don’t think we’re going to get anything out of the Fed beyond reassurances that they’re watching the economy carefully and stand ready to take action if things take a turn for the worse.

There’s more to gold’s recent rally than stimulus bets and I’m not sure gold would be accurately priced relative to the dollar either way. The Federal Reserve has already created something on the order of $6 trillion in currency since 2009. Surely some of that massive excess has been reabsorbed; the Fed can make money disappear as easily as they make it appear. But the truth is there is no accurate measuring stick for comparing the price of gold relative to the money supply.

The trading of derivatives on the commodities markets is how the daily spot price of gold and silver are set; those markets are subject to the same types of manipulation as equities, often by the same entities. The big banks place electronic bets against one another in the world’s largest casino, all financed by a steady flow of cheap cash from the Federal Reserve.

Technically banks are supposed to loan out the money they get from the Fed, but banks haven’t been interested in making loans since the market crash. We let big Wall Street banks become the middlemen in our economy and now they’re not getting the job done. Banks are in it for the banks and everyone else be damned. In hindsight I believe one of the biggest collective mistakes we made during the crash of 2008 was not letting the big banks and AIG go under, but I’m getting off the trail a bit here.

The bottom line is we don’t really know what the electronic blips in our bank accounts are really worth relative to gold. All we have to go on is the spot price, which is subject to being manipulated by sophisticated traders.

I invest in gold and silver for the same reason I buy insurance, as a hedge against the unknown. While I’m not completely certain what my computer blips are worth relative to gold, I am fairly certain that if the real numbers came to light, gold would look incredibly cheap.